The OECD has taken stock of cross border tax issues that are likely to arise due to the current pandemic and has provided its guidance on how to best deal with those issues considering international tax treaty principles. We also investigate the UK’s statutory residence test (‘SRT’) which has been used to determine whether an individual is tax resident in the UK.




Creation of Permanent Establishment

Enterprises may be concerned that their employees working remotely from other countries may create a “permanent establishment” in those jurisdictions and therefore creating tax obligations in those countries.


  1. The “exceptional and temporary change” of the location from where the employees perform their duties (which may include entering into contracts on behalf of their employer) should not create any permanent establishment for the employer. This characteristic is at odds with the definition of a permanent establishment which must have a “high degree of permanence and be at the disposal” of the enterprise. 
  2. However, the OECD urges tax administrations to provide guidance on the matter as certain jurisdictions may have lower thresholds for enterprises to register and or make filings. 
  3. As for construction sites which must be halted due to the pandemic, the length of such interruption must be considered when determining whether the construction site constitutes a permanent establishment.

Place of Effective Management


Enterprises may find that their senior executives or directors are unable to travel and that this inability to travel may impact their tax residence.


  1. In the event that this set of circumstances results in double tax residence, the OECD highlights that most tie breaker rules2 in tax treaties will look at the place of effective management as a key criterion. 
  2. The relevant Commentary on this article provides that in order to determine the place of effective management of a company, consideration must be given to all facts and circumstances to determine where ordinarily the key decisions are made. Therefore the conclusion should be that exceptional relocation due to Covid-19 is not usual and therefore should not be taken into account.

Cross border workers


States are concerned about their taxing rights over employment income where employees are working from their state of residence, which is different from the place where they used to perform their employment.


  1. The principle for taxing employment income follows the “place of exercise test”.
    The State where the employee used to work before Covid-19 crisis has the taxing right over wage subsidies from governments. Where the Source State has taxing right, the Residence State should provide relief from double taxation. 
  2. Suspension of withholding tax on employment income is required where the country where employment was formerly exercised lose its taxing right. In such circumstances, employees might have new or enhanced tax liability in their Residence State.

Residence status of individuals


The residence status of individuals might change where they get temporarily stranded in a host country or where they temporarily return to their previous home country.


  1. The tie-breaker test should be used to determine the residence of individuals.
  2. Where an individual get stranded temporarily in a host country, it is unlikely that his/her residence status will change. 
  3. Where an individual who acquired residence in one country, returns to his/her previous home country, the application of the tie-break test might produce uncertain results. The OECD recommends to apply the “habitual abode”5 test to determine the residency of an individual. 
  4. In the current circumstances, tax administrations should consider a more normal period of time when assessing an individual’s tax residence.

Statutory Residence Test

The SRT takes into account various factors but focuses heavily on the number of days an individual can spend in the UK. Broadly, an individual spending fewer than 16 days in the UK in the tax year (6 April to 5 April) or 46 days if not UK resident in one of the preceding three tax years, will be conclusively non-UK tax resident. If the threshold of 183 days in the UK is reached in the tax year, the individual will be conclusively UK resident. Between those ends of the spectrum, an individual’s ‘UK Ties’ will determine how many days he may be present in the UK (being a number less than 183) before he/she is treated as UK tax resident.


As a rule, the recommendation would be that an individual who needs to manage the number of days spent in the UK works out the number of days they can spend in the UK before becoming UK tax resident and then excludes at least 14 days from this total for unexpected visits to the UK for family, business or health reasons. However, the travel restrictions imposed as a result of Covid-19 and the varied approach taken by different jurisdictions, may mean that this safety margin of 14 days is insufficient.

The SRT provides a statutory relief which may be used to exclude from an individual’s UK day-count any day as a result of ‘exceptional circumstances beyond the control of the individual which prevents him from leaving the UK.’ The number of ‘exceptional’ days is limited to 60 days in the tax year.

On 19 March 2020, HM Revenue and Customs (“HMRC”) confirmed that if an individual were to find themselves in the following circumstances due to Covid-19, it will be considered ‘exceptional’ for the purposes of obtaining the relief.

  1. Quarantine or advice by a health professional or public health guidance to self-isolate in the UK as a result of the virus
  2. Receipt of official Government advice not to travel from the UK as a result of the virus
  3. Inability to leave the UK as a result of the closure of international borders, or
  4. A request is made by the individual’s employer for his temporary return to the UK as a result of the virus.

It should be noted that the HMRC will consider cases individually, which ultimately means that the position for taxpayers is uncertain and taxpayers should seek the appropriate tax advice.

The following scenarios are most likely to create problem areas;

Working whilst delayed in the UK

Individuals working whilst marooned or quarantined in the UK could face increased risk of inadvertently becoming UK tax resident in a number of different ways.

Only home is in the UK


There is also a risk that an individual will become automatically UK resident if there is a 90 day period where he only has a UK home and does not spend 30 days in his overseas home in the tax year.

Overseas employer – employee is marooned or quarantined in the UK


  • Depending on how long it lasts, this can trigger UK income tax for the individual and PAYE obligations for the non-resident employer.
  • The non-UK company could be treated as carrying on a trade in the UK which is subject to UK tax.
  • If the individual is a director of the overseas company, it can even have the effect of making the non-UK company UK tax resident and subject to UK corporation tax on their worldwide income and gains.

Remittance basis users


It is likely that remittance basis users who rely on their UK source income to fund their lifestyle in the UK will be hit by the financial issues linked to Covid-19.


We do not offer taxation or legal advice and do not hold ourselves out to be tax experts or advisors in Mauritius or anywhere else. Independent legal and tax advice should be sought.